5 Multimillion-Dollar Negotiation Mistakes (and How to Avoid Them)

by Salary.com Staff - Original publish date: June 11, 2013

Decisions, Decisions

There are many times in life when a poor decision is going to cost you some money.

There are the little decisions that bug you, like waiting too long to buy an airline ticket and the price jumps $60, buying a pair of jeans only to see them go on sale for 50% off the next week, or illegally parking your car for just a minute while you run an errand, only to find a $125 ticket on your windshield when you come outside.

Then there are some big decisions. One look at Wikipedia’s list of most expensive divorce settlements – twenty-two of them more 50 million dollars! – will make you shudder.

However, some of the most critical turning points can happen in a situation that you have some control over – a negotiation. Here are five multi-million-dollar negotiation mistakes.

5. Ronald Wayne, Apple Computer: $35 Billion

While Steve Jobs and Steve Wozniak are household names, Ronald Wayne is the Apple co-founder many people have never heard of. Acting as the father figure when Apple was just starting out in 1976 (he was in his early 40s while Jobs and Wozniak were in their 20s), Wayne drew the first Apple logo and received a 10% stake in Apple stock.

However, Wayne gave up his shares in the company later that first year for a total of $2,300. According to Gizmodo, in August 2011 his shares would have been worth $35 billion dollars.

4. Facebook Purchases Instagram: $300 Million

Here’s a story where few people will lament the “negotiation loss” of Instagram CEO Kevin Systrom, who personally netted hundreds of millions of dollars when his 13-person company was purchased by Facebook for $1 billion in April of 2012.

However, Steven Davidoff of the NY Times Dealbook blog offered up a story of “How Instagram could have cut a better deal.” Because much of the deal was tied to Facebook stock, a lot could happen between the time the deal was announced (April 2012), the date of Facebook’s IPO (May 2012), and the day the deal officially closed (September 2012).

When Facebook shares fell, it left the founders out nearly $300,000,000 on the deal. Davidoff writes, “Instagram’s founders could have avoided this situation by bargaining differently.” They “did not agree to a floating share exchange ratio or a stock collar, two fairly common merger tools,” which would have ensured “that a seller will receive a fixed value in the acquisition regardless of what happens to the purchaser’s shares.”

So while the sale of Instagram to Facebook (and not Twitter) made Jack Dorsey sad, I’m sure Instagram’s founders will be able to get by on their final deal price of $736.5 million.

3. Geno Smith, New York Jets QB: $12 Million

Sometimes money is not lost at the negotiation table, but rather at the interview desk. In real life if you blow the interview, you probably don’t get the job. But in the NFL, things work a bit differently.

Geno Smith is a quarterback from West Virginia that was selected by the New York Jets with the 39th pick in the 2013 draft. ESPN reports that he will sign a 4-year contract worth about $5 million. Not too bad for an entry-level position, right?

But even if you’re interviewing for a $30,000 marketing coordinator job, you can learn a lot from how Geno conducted himself during his “interview.”

According to an article on ESPN, Smith's behavior before, during and after the draft has raised questions about his maturity. And reports of his performance during team visits – the equivalent of a job interview – were not kind:

  • He had a “diva attitude”
  • He came off as a “spoiled, pampered brat”
  • He was preoccupied with his cell phone during meetings, texting friends and checking Twitter
  • When not selected where he felt he should be, he threatened to leave the draft and go home, then later responded by firing his agents

The result? The Jets passed on him not once but twice (as did other teams) before finally choosing him at #39. While his future in the NFL is uncertain, had he been chosen near the top 10, he would have been paid more than $4 million per year – a loss of about $12 million dollars.

The moral? Put away that cell phone during your interview!

2. Warner Bros vs. Todd Phillips: $63.5 Million

In this example, we’ll score one for the good guys. This Hollywood Reporter article tells the story of how the blockbuster hit The Hangover came to be. One of the most interesting parts talks about Warner Brothers trying to cut costs when no A-list stars had agreed to star in the movie.

They went to director Todd Phillips and “insisted that the film's mid-$40 million budget be trimmed and Phillips' $6.5 million directing fee be cut in half (with the rest paid only if the movie was a success).”

Some directors might have agreed, having faith in themselves that if they worked hard, they would get the full amount. This is how many people negotiate their salary. They accept a low-ball offer and hope to work hard and get a raise a year or more later.

However, like a good negotiator, Phillips’ agent and attorney came back with a different proposal: The director would forgo his fee almost entirely in exchange for what sources say is a 16 percent stake in the film. The studio agreed.

As you can see, the director REALLY had faith in himself. The result? The unexpected hit netted him nearly $70,000,000 from the first movie alone, a windfall of more than $63 million more than if he had accepted the first offer (assuming he would have received the full $6.5 million).

1. YOU: $2 Million

Wait, me?  Yes, you.

It’s been real fun laughing at everyone else’s missteps, right? But the fact is, if you don’t negotiate properly, you’re going to leave millions on the table yourself. Let’s assume the following details:

  • You start your working career at age 22
  • You retire at age 65
  • Your starting salary in your first job is $40,000
  • You accept an average raise, like everyone else (estimated to be 2.4% according to a 2012 study by Mercer)

Total lifetime earnings?  About $2,900,000.

Now let’s make one little adjustment. You decide you’re not like everyone else, and you put in the time and the effort to learn negotiation skills and you step up and ask your boss for a raise. Even if you receive only a slightly higher increase of 4.4% (Mercer’s 2012 average for top performing employees), the result will be:

Total lifetime earnings? About $4,900,000.

That’s right, if you don’t negotiate, your name will be added to the list of multi-million-dollar negotiation mistakes. Don’t let that happen.

Let Salary.com Help You Negotiate

Only an idiot would leave $2 million on the table, right? Well that's exactly what you're doing if you don't learn how to negotiate and then execute during an interview. Luckily Salary.com can help.

The first thing you should do is research, so you're able to come to the table armed with the knowledge of what your job is worth. Use our free Salary Wizard below to find out what's a fair salary for your position. You can enter your location, education level, years of experience and more to find out an appropriate salary range before you negotiate.

Good luck.